What a Trial Balance Is and Its Purpose
A trial balance is a list of all general ledger accounts and their debit or credit balances at a specific point in time. It is called a "trial" balance because it tests — trials — whether the sum of all debit balances equals the sum of all credit balances. If the double-entry bookkeeping system has been applied correctly throughout the period, every entry has debits equalling credits, so the total of all debit balances must equal the total of all credit balances in the ledger.
The trial balance serves two purposes. First, it is a mathematical check — if the totals do not balance, there is an error somewhere in the recording or posting process that must be found and corrected. Second, it organises all account balances in one place, making it the convenient starting point for preparing financial statements.
How to Prepare a Trial Balance
Preparing a trial balance follows a simple five-step process:
- Calculate the ending balance for each account in the general ledger (total debits minus total credits, or vice versa depending on the account's normal balance).
- List all accounts in order: assets first, then liabilities, equity, revenues, and expenses — though any consistent order is acceptable.
- Place each account's balance in the appropriate column: debit balances in the debit column, credit balances in the credit column.
- Total the debit column and total the credit column separately.
- Verify that the two column totals are equal. If they are not, there is an error that must be located before proceeding.
Full Worked Example
| Account | Debit ($) | Credit ($) |
|---|---|---|
| Cash | 8,400 | |
| Accounts Receivable | 3,200 | |
| Prepaid Insurance | 1,200 | |
| Equipment | 15,000 | |
| Accumulated Depreciation — Equipment | 2,000 | |
| Accounts Payable | 4,100 | |
| Unearned Revenue | 800 | |
| Common Stock | 12,000 | |
| Retained Earnings | 5,200 | |
| Service Revenue | 9,600 | |
| Wages Expense | 4,500 | |
| Rent Expense | 1,200 | |
| Utilities Expense | 200 | |
| Totals | 33,700 | 33,700 |
The trial balance is in balance — debit total equals credit total at $33,700. This confirms that no posting errors exist of the type that would create an inequality. Notice how assets, expenses, and the depreciation contra-asset follow their normal balance rules: assets and expenses have debit balances; liabilities, equity, and revenue have credit balances; accumulated depreciation (a contra-asset) has a credit balance.
Errors a Trial Balance Will Catch
The trial balance catches errors that create an inequality between total debits and total credits:
- Posting only one side of an entry — posting a debit but forgetting the credit (or vice versa)
- Posting different amounts — debiting $500 but crediting $50 due to a transposition of digits in posting
- Arithmetic errors in calculating individual account balances
- Posting an entry twice to one side — posting a debit twice but the credit only once
Errors a Trial Balance Will NOT Catch
This is the critical point that accounting exams test repeatedly. A balanced trial balance does not prove that the accounting records are error-free. It only proves that debits equal credits. Errors that preserve the debit-credit equality slip through undetected:
- Recording the wrong amount in both debit and credit equally — recording a $500 purchase as $5,000 on both sides balances perfectly but is still wrong
- Posting to the wrong account — debiting Office Supplies instead of Office Equipment (both are assets with debit normal balances, so the total balances)
- Omitting an entire transaction — if a transaction is never recorded at all, both sides are absent and the total still balances
- Recording a transaction twice — duplicating both the debit and the credit creates a balanced error
- Errors of principle — recording a capital expenditure as a revenue expense creates a balanced entry but violates GAAP
The Three Trial Balances in the Accounting Cycle
The accounting cycle uses three trial balances, each serving a different purpose:
- Unadjusted trial balance — prepared after posting all regular journal entries, before adjusting entries
- Adjusted trial balance — prepared after adjusting entries have been posted; this is used to prepare financial statements
- Post-closing trial balance — prepared after closing entries; should show only permanent accounts with non-zero balances
Adjusting to the Adjusted Trial Balance
The unadjusted trial balance is rarely the final version before financial statements because accrual accounting requires adjusting entries at period-end. Adjusting entries for accrued revenues, accrued expenses, deferred revenues, and prepaid expenses all update account balances that the regular journal entries did not fully capture. After posting these adjustments, a new trial balance — the adjusted trial balance — is prepared.
The adjusted trial balance is the direct source for financial statement preparation: all income statement accounts come from it, all balance sheet accounts come from it. It is the definitive list of account balances for the period after all economic activity has been recognised. Practise preparing it with trial balance questions on PrepQBank.
Practice Trial Balance Questions
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